Consumer Price Index (CPI) measure of inflation fell from 0.5% in December to 0.3% last month, its lowest level since records began in 1989

Inflation fell to its lowest level on record in January amid low oil prices and fierce supermarket competition - and is expected to slide further in coming months.

Chancellor George Osborne hailed it as a "milestone for the British economy" and used the figure to taunt Labour that its "cost of living crisis" rhetoric was "plain wrong".

The Consumer Price Index (CPI) measure of inflation fell from 0.5% in December to 0.3% last month, its lowest level since records began in 1989, according to the Office for National Statistics (ONS).

It means a basket of goods and services that cost £100 in January last year would have been just 30p more last month.

According to an experimental model created by the ONS last year, CPI was last lower in March 1960 when it was minus 0.6%.

The Bank of England expects inflation will turn negative for the first time in five decades during the next few months before recovering later in 2015.

Core inflation - stripping out food, energy and fuel prices - crept up, from 1.3% to 1.4% in January. The pound edged higher against the US dollar although it was a cent lower against the euro, sliding away from recent seven-year highs.

The Retail Price Index (RPI) measure of inflation, which includes housing costs, fell to 1.1%. RPI is used to regulate rail fares and water charges and some tax duties.

Policy-makers see low and even negative CPI as a positive for the economy as it hands spending power to consumers. It should fall further over coming months with the impact of recently-announced household energy tariff cuts.

Bank of England governor Mark Carney has said that if low inflation persist for longer than expected, interest rates could be cut even further from their current historic low of 0.5% by the Bank's monetary policy committee (MPC).

Officials want to avoid a downward spiral of falling prices, with consumers putting off spending and firms delaying investment.

The latest inflation figures come during an important week for economic data, with employment and wage numbers out tomorrow and public sector finance figures - giving a key update on efforts to bring down the deficit - on Friday.

Mr Osborne used today's data to vaunt his economic credentials in the run-up to May's general election.

The Chancellor said: "Today we see the lowest CPI inflation ever - a milestone for the British economy.

"It's great news for families, whose budgets will stretch even further. It shows that those who went around predicting a cost of living crisis were plain wrong.

"And it demonstrates the clear choice between a long-term economic plan that's delivering stability and rising living standards, and the chaos of the alternatives."

But TUC general secretary Frances O'Grady said: "Low inflation is a sign of fragility in both the UK and global economy."

Shadow Treasury minister Cathy Jamieson said: "Wages continue to be sluggish and working people are £1,600 a year worse off under this Government. A few months of falling world oil prices won't solve the deep-seated problems in our economy."

January's figures showed the ongoing effect of the supermarket price war as food and non-alcoholic beverages fell by 2.5% year on year, the steepest rate on records going back to 1997, driven by milk and some fruit prices.

Fuel prices also dropped at a record rate, while there was a dip in the price of beer to cheer drinkers.

But clothes prices fell by less than usual in the January sales, with much of the discounting in the sector taking place before Christmas.

Meanwhile, a separate index showed the price of goods bought and sold by UK manufacturers continued to fall in January, driven by the slide in crude oil, which dropped by 50%, its steepest year-on-year rate on record.

The figures for January cover a period when the price of a barrel of Brent crude fell to as low as 45 US dollars, though it has since recovered to more than 60 US dollars.

Paul Hollingsworth of consultancy Capital Economics said a brief period of deflation looked "imminent" in March or April.

He said: "Although we have probably seen the full impact of lower oil prices on petrol prices, we have almost certainly not seen the full effect trickle down to other goods."

John Hawksworth, PwC's chief economist, said the fall in CPI to 0.3% was "largely due to the lagged effects of past falls in global energy and food prices".

He said: "Oil prices have rebounded since late January, however, and if this recovery continues, it will lead the headline inflation rate to bounce back quite strongly in late 2015 and early 2016.

"We would certainly not rule out the first interest rate rise coming later this year as the MPC looks through the current sharp dip in headline inflation to potential medium-term upward pressures on inflation as the recovery continues."